What Is an Escalation Clause?

You’re a first-time home buyer and just found your dream house. You put in an offer. The seller goes with someone else.

That’s OK, because shortly after you find another beautiful home! You put in your offer. But once again, the seller goes with someone else.

Anyone would be bummed in this situation. Most would be thinking the same thing: How can I break the pattern?

The escalation clause is a potential solution. See how this real estate tip can keep your offer on the table!

What It Is

The escalation clause is this little-known addendum that you can add to your offer. If you hear that there are other offers on the table, you can submit an escalation clause to help give your offer a little boost.

Infographic explaining what an escalation clause is in real estate

How It Works

Oftentimes, interested home buyers will submit an offer on a house they really love, listing the max price they’d pay off the bat. Their offer still might not get accepted, but even if it does, they might end up paying more than they needed to.

Let’s say you put in your offer at $250k. You find out there are other offers. Here’s what you can do:

  • Determine what your maximum amount is
    • Ex: “I don’t want to pay more than $280k on a house.”
  • Decide the incremental amount you’ll extend your initial offer
    • Ex: “I’ll increase my offer by $1200 up to $280k.”

There’s a lot that goes into making an offer, and an escalation clause doesn’t guarantee success. However, it can keep your foot in the real estate door, and it’s handy for when you find a house that you really want.

Can an Escalation Clause Backfire?

Not really, except in the sense that you could end up paying your max when you didn’t need to. The best way to prevent this is by only submitting an escalation clause when you know there are other offers. Don’t submit if the sellers tell you “We’re expecting other offers” or something along those lines—only when there are actual, written offers on the table. Ask the seller’s agent to let you know when other written offers have been presented.

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Pre-Event Offers: An Escalation Clause Alternative

Placing a pre-event offer for a home auction is similar to an escalation clause. With RealtyHive, your pre-event offer could be accepted and then you wouldn’t even have to wait for the event itself! You can submit your offer and increase it in the same increments. We also sell traditional properties, so escalation clauses can help in competitive situations.

You might have been unsuccessful with offers in the past, but with your newfound escalation clause and pre-event offer knowledge, we think your future of home ownership is looking pretty bright. Check out some of the incredible properties on RealtyHive today!

Special thanks to @fixandflip_kdesigns for their business tips.